Insurance sector's interest in carbon capture market gathers pace
Aon says its new product is the first 'fully comprehensive' carbon capture and storage insurance product
Aon has become the latest company to create a product supporting the emerging carbon capture and storage sector
An increasing number of brokers and insurers are turning to the carbon capture market to support customers in their transition to net zero.
Aon this week became the latest to join the fray with a carbon capture and storage (CCS) product aimed at international transport and storage companies.
The global broker claims the product is the first “fully comprehensive” CCS insurance product, covering aspects including the integrity of carbon storage reservoirs and indemnity for loss of tax credits associated with carbon leaks.
The product was a result of Aon’s involvement with the HyNet North West project, a clean hydrogen production project being developed in the north-west of England – clean hydrogen being one of the potential alternatives to fossil fuels.
The project, which also aims to build a hydrogen pipeline and storage facilities through the region and into north Wales, will include a carbon capture and transportation element that will pipe captured carbon into undersea storage.
Aon, which acted as an insurance broker for one of the project’s lead developers working on the carbon pipeline, says the scheme is among the first commercial-scale carbon sequestration and capture projects in the UK.
The cover provided by the product includes the construction and repurposing of existing assets as well as the operational phase of projects.
Like other carbon insurance products, Aon hopes that, by providing relevant insurance products, it can help bring in investment to support what is still a developing technology by de-risking some of the financial aspects.
Earlier this year, global broker Howden released its own facility providing cover for the leakage of carbon from commercial-scale CCS plants.
Led by Scor, the Lloyd’s facility provides balance-sheet protection for environmental damage and loss of revenue arising from either a sudden or gradual carbon dioxide leak associated with CCS technology.
Managing general agent CFC has taken a slightly different tack, placing a bet on the voluntary carbon market by launching a product protecting against non-delivery of voluntary carbon bonds.
Like its peers, CFC hopes that, by providing buyers of voluntary credits guarantees of a refund if a carbon capture or offsetting project fails either fully or partially, it will encourage more industry to invest.
CCS is a mixed bag including a variety of technologies, ranging from removing carbon from the output of existing fossil fuel-burning industries to trying to extract existing carbon directly from the atmosphere.
While the former is seen as a sticking plaster – with the only viable solution the phasing out of fossil fuels – the latter has often been touted by some as the one of our best hopes to mitigate global warming.
What is generally agreed is that neither approach is happening at a scale required to offset the total emissions being created by human activity.
The International Energy Agency (IEA), an intergovernmental organisation, estimates there are just 40 commercial CCS facilities in operation at the moment.
Momentum is growing. There are around 500 projects in various stages of development across the CCS supply chain, including plans for 50 new carbon capture facilities to be in operation by 2030, capturing around 135 megatonnes of carbon a year.
However, the IEA says this would still be about a third of the 1.2 gigatonnes of carbon capture capacity needed to meet net zero by 2050.
However, far from being a lost cause, the IEA is calling for increased government focus, public funding and cross-boarder collaboration on CCS projects. Increasingly, the insurance industry is also finding ways to support the technology.
